The Use of the Herfindahl-Hirschman Index (HHI) to Measure Market

question 108

True/False

The use of the Herfindahl-Hirschman Index (HHI) to measure market concentration is encouraged for banks because of the ease of separating banks from thrifts and insurance companies.

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Definitions:

Operating Income

Earnings before interest and taxes (EBIT), calculated as gross income minus operating expenses, excluding non-operating income and expenses.

Variable Product Cost

Costs that vary directly with the level of production, such as materials and labor.

Total Fixed Overhead

The sum of all costs that remain constant regardless of the level of production or sales, such as rent, salaries, and insurance.

Contribution Margin

The amount remaining from sales revenue after variable costs have been deducted, used to cover fixed costs and to generate profit.